'The Donors’ Dilemma' - Aid Circa 2032: Three Players, No Winners

This column by Karl Muth part of Global Policy’s e-book, ‘The Donors’ Dilemma: Emergence, Convergence and the Future of Aid’, edited by Andy Sumner. Contributions from academics and practitioners will be serialised on Global Policy until the e-book’s release in the first quarter of 2014. Find out more here or join the debate on Twitter #GPfutureofaid.

Many commentators have noticed, and noted, that post-colonial aid has begun to have a “strings-attached” component. These writers object to the fact that more aid arrangements have, inextricably intertwined with them, bits that tie the recipient to the donor or allow the donor to exploit the recipient. Others see a return – financial or otherwise – for the donor country as the only way aid can be sustainable. But the concept of aid as profitable diplomacy leads to dark places.

What might a future aid dystopia look like? Here, I paint a worst-case future where three specific types of “aid” persist, which I imagine as American, Chinese, and Peninsular Arabian.

In the years between 2014 and 2032, the defense industry and defense contracting continues to grow as a portion of U.S. GDP, rising from 4.5% of GDP in 2014 to 20% of GDP in 2032 (1). In 2032, the United States fertilises its military-industrial complex primarily through foreign purchases, as purchases for domestic inventory are already at their maximum. USAID is completely militarised and part of the Department of Homeland Security; its primary purpose is to coerce local officials to use American military hardware and divert education and other funds toward the purchase of American weapons (2). Firms like Lockheed Martin and Boeing (which has since abandoned its passenger plane business to focus on weapons exclusively) are now among America’s largest companies, owning private intelligence agencies that provide everything from consumer credit reports to corporate espionage services to highly-trained informants. Over half of America’s overseas aid budget in 2032 is direct grants requiring beneficiary countries to use much of the money provided to buy American weapons or hire highly-paid American consultants, which diplomats refer to as “kickback aid.” The other half is spent primarily on an aid programme called “Homeland Knowledge” which pays people in foreign countries to spy on their neighbours, employers, and spouses, sending reports to the CIA and NSA.

China is the main provider of aid in the Year of the Fire Dragon, 2032, disbursing 70% of the money the OECD describes as “aid” (3). Like the U.S., China uses its aid programme to attempt to sustain or accelerate its rate of economic growth. China provides only aid loans (and no grants), often at usurious rates, which remain the only way for most countries to access capital after the market for emerging debt collapsed in 2018 (4). As a condition of the loans, every person born after the loan agreement must speak Mandarin, all business must be transacted under the rules of codified Chinese commercial law, and muqasat-like agreements are imposed country-wide on agricultural and mineral revenues, voiding any extant property rights (5).

In early 2031, China seized and militarised the ports of Mombasa, Dar es Salaam, and Tanga as collateral for Kenya and Tanzania’s unpaid debts, killing thousands with nighttime cluster bomb strikes in residential areas (6). This follows the seizure of the Marange diamond fields as collateral in 2028 and, later, the seizure of the entire Kingdom of Zimbabwe (now called “New Xinjiang” ), both as a penalty for its default on debts owed under Queen Bona Mugabe (7). Many believe the whole of sub-Saharan Africa, except for the extremely wealthy enclave of Western Cape and the oil-rich isolationist theocracy of Nigeria, will come under Chinese control, largely due to defaults on collateralised development loans after the People’s International Credit Consortium, based in Beijing, privatised and renegotiated the loans of the African Development Fund (8).

The United States of the Peninsular Arabia (USPA), formerly the UAE, aggressively develops aid around educating the best students globally, giving away billions of dollars per year in its aid agency’s Azhar Prizes, multi-million-dollar prizes for the few best students from various regions, including the United States, who then obtain unlimited work visas (but not citizenship) in the USPA (9). To participate in the Azhar Prize, a country must adopt comprehensive liberalisation policies that allow USPA exploitation of local residents, from the elimination of the minimum wage to the legalisation of organ sales. Academics and thinktanks suggest the Azhar Prize has massive “brain drain” effects larger than the windfalls its Prize creates, bribing the best students from poor countries to leave, but the USPA argues this is no different from the effects of American universities’ scholarship programmes fifty years earlier.

These students become workers at the top firms in the 2032 knowledge economy, taking top jobs in technology, finance, and in the new international commercial court system based in Dubai (10). Focusing on high-value services after oil and gas reserves were largely depleted in the past three decades, the USPA has become the most desirable place to work, with wages across professions well in excess of those on offer in London, New York, or Shanghai. The USPA funds a small number of academies in each region overseas to produce uniformly strong candidates for the Azhar Prize, even the weakest of which produces stronger students than the top local school systems. In many areas, these academies are the most advanced and tallest buildings in the country and targets of local terrorist groups. Unfortunately, poor countries often invest little in even basic literacy for the masses, hoping the few children eligible for the Prize will land investment banking jobs in Doha or Dubai and send hefty remittances home.

The world’s population, soon to surpass nine billion people, contains within that number over seven billion poor people. While far fewer, in percentage and absolute terms, are in the terrible abject poverty seen in Africa and rural Asia during the Twentieth Century, few are beneficiaries of policies that make the climb out of poverty imaginable – let alone attainable (11). The poor are sorted by their desirability, but those without any spying to sell, influence to peddle, or intelligence to exploit are thrown back into the sea of suffering, as they have been for centuries.

But never before so efficiently.

Karl Muth is a commentator, consultant, economist, and legal academic. Karl studied law in the Netherlands and in the United States and holds J.D. and M.B.A. degrees, the latter with a concentration in Economics from The University of Chicago. He is currently a postgraduate research student (M.Phil./Ph.D.) under Professor Robert Wade at the London School of Economics writing on risk measurement and mitigation in emerging markets. Karl was an Executive-in-Residence at the University of Chicago's Booth School of Business and is currently a Lecturer in Economics and Public Policy at Northwestern University.

(1) As this piece was written in 2013, this is an estimate from the 4.4% number for 2012 published by the World Bank and computed using the NATO comprehensive definition of military expenditure which includes all current and capital expenditures related to the armed forces, including the cost of hiring and maintaining personnel and “military aid” which is substantial in the U.S. context. “Military aid” includes what the Department of Defense terms military assistance, which may include money given to other countries to purchase American equipment, the practice discussed here.

(2) For a current example of kickback aid, see the U.S. State Department’s foreign military financing agreement (FMFA) with Egypt, which provides nearly $1.5 billion to Egypt in military assistance, but $1.3 billion of this must be spent on purchasing American weapons or American-contractor-provided training and security. The agreement also includes a line-of-credit provision, allowing Egypt to order expensive weapons systems from U.S. defense contractors and to pay on delivery (these orders are typically pay-on-order, not pay-on-delivery).

(3) The OECD definition is the dominant definition of developed-to-developing-world aid, which defines foreign assistance or foreign aid as “financial flows, technical assistance, and commodities that are (1) designed to promote economic development and welfare as their main objective; and (2) are provided as either grants or loans.”

(4) See hyperlinked article for more details on why China’s development loans have substantially more stringent terms than World Bank and other lending and the effects of these stricter loan arrangements. Note that Chinese lending policy has focused not on policy conditions (which are rare in Chinese loan agreements, unlike in IFI/Western agreements) but instead on specific new bilateral trade rules requiring purchases or requiring the relinquishment of natural resources. Chinese development loans are not (yet) collateralised in the strict sense, though here I theorise this is a likely next step in Chinese development lending.

(5) China has already given incentives to African countries to teach basic Sinophone language skills.

(6) The enforcement of a security interest by seizing large swaths of land was common in Rome and in ancient China.

(7) This scenario is based on Zimbabwe’s 2004 default, which suspended its participation in the IMF and IMF-backed loan programmes and led to a lending relationship between Zimbabwe and China on inferior terms.

(8) This would suggest a return to the somewhat isolationist policies of Western Cape during its period as Dutch East India. In recent years, regionalist and even pseudoseparatist rhetoric has dominated Cape Town’s political climate

(9) This concept is a reaction to the many prizes, from the Thiel Fellowships to the MacArthur “Genius Grants” that scout and reward extremely unusual levels of talent or ability.

(10) This prediction is drawn from dissatisfaction, particularly among parties plaintiff and litigators, with the International Court of Arbitration in Paris, which arbitrates hundreds of billions of dollars of commercial claims.

(11) Derived from the upper decile of the estimates resulting from the UN study “World Population to 2300”.